World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, January 22, 2009

Thain being shown the door at Bank of America? That didn’t last long! Let’s see, Merrill, then BAC, and now we find out that bonuses were being paid all the while receiving BIG bailout money from the government. OINK. And if that wasn’t enough, he and others in close proximity with big public announcements of stock purchases in their own company’s stock just as Obama is taking office. Hmmm… If I were thinking like a criminal, or like an attorney, I might just want to buy some so that later I can say, “see I bought stock in my own company, even I was fooled,” as a way to keep from going to jail – which is exactly where they all belong. How long has this kind of manipulation and outright theft been going on now? Too long!

Today the DOW finished down 105 points, the SPX down 1.5%, the NDX down 1.5%, and the RUT was the ugly one again losing 3.1%. Notables were the XLF which lost 6.2%, C gave back 15.3% in yo-yo fashion, BAC lost 14.5%, and GS managed to keep the con going longer and gained 1.6%, along with JPM who gained 2.1%.

The internals were almost the reverse of yesterday with nearly 4 to 1 down issues and declining volume seriously outweighing advancing volume.

Google reported better than expected profits and revenues after the bell and is up a little, but not affecting the NDX much at all. AMD posted its ninth loss in a row, perhaps that’s keeping a lid on the enthusiasm.

Southwest Airlines (LUV) jumped 17% today after reporting a strong quarter despite losing more than $61 million on fuel hedges. The XAL was up a little more than 2% today, one of the few segments that was higher.

Speaking of airplanes, did you see that they found bird parts on the wings and engines of flight 1549 that crashed into the Hudson River? Yep, here's a picture from "intelligence" indicatating that it may have been an act of terrorism:

Still looking like Geithner’s Secretary Treasurer appointment is moving along – he cleared the Senate today. He also accused China of manipulating its currency and claimed to the Senate Banking Committee that he wouldn’t be asking for any more TARP or bank bailout money any time soon – oh yeah, words you can believe in there. Sorry if I sound sarcastic.

Speaking of sarcasm, did you hear that Toll Brothers is offering 3.99% fixed rate mortgages on their existing new homes? There’s a deal there!

No economic reports come out tomorrow… with the way today’s housing and unemployment data came in, I’ll take it that people will view that as a relief.

Well, this morning I said that if we didn’t break yesterday’s lows that I would be thinking we are in a triangle… well, that’s what happened and I see triangles all over the place now. As you look a the charts, keep in mind that this very likely means that the move down from the January 6th high to the 21st low was POTENTIALLY wave 1 down of 5 down. If so, then the current triangle is wave 2 and that would mean that wave 3 down would be next. Keep in mind that triangles are a wave two or a wave 4 phenomenon. The rule of alternation suggests that if a triangle occurs in wave 2, then later wave 4 will tend to NOT produce another triangle and would more likely produce some sort of flat or zig-zag pattern. Of course we still haven’t broken the November lows, so that still leaves the door open to us being in wave B up/sideways, but that just isn’t what the charts are telling me. I know that’s what they are telling some others, and it could very well be. Again, I wouldn’t be betting the farm on anything here and now. If we break down out of this triangle, however, you should give the wave 5 down scenario a lot of weight, particularly if wave 3 begins impulsively down.

Speaking of triangles, let’s begin with the charts by looking at a Point & Figure chart of the SPX. Yesterday the same chart had posted a “low pole reversal warning.” Today, that is gone – the 695 target remains. And, if you look at the action, what do you see? A triangle is forming! What way was the triangle entered? From above, which means it’s supposed to break down. And how far is it expected to run? The length of the shaft is typical, and that’s a long ways – in this case about 140 S&P points which is pretty similar in size to decline segments of last year:

Next, let’s look at the one month XLF. Note that we pinned the lower Bollinger band, bounced up, then down, then up – to produce a “spinner” candlestick. These are a thick bodied Doji that indicate indecision or consolidation. They are also an indication of being in a triangle. Volume was decent, again certainly not a washout and slightly less than yesterday’s advance:

Next let’s look at a 10 day chart of the same XLF. This is an unusual one. Still looking like an expanding pattern which could reverse higher, but note that it was stopped twice more today on that same trendline and that it closed right on the blue triangle bottom line. That triangle runs out of time tomorrow, so we should get resolution one way or the other. Here, the 10 minute stochastic is oversold, but the 30 and 60 are in the middle, just as we are in the middle of a triangle as you’ll see in the indices:

Next up is the DOW daily. That’s a big ‘ol inside hammer candle… or is it? Again there’s a huge difference between the candle produced here and on the ETF. This is one of the errors that a Martin Reality Index (MRI) would get rid of – again, the error is introduced by the way the indices draw a line at the open instead of gapping higher or lower like the ETFs do. Note the consistent and elevated volume level:

Here is the same chart but of the DIA ETF. That’s a Doji, certainly NOT a hammer. Can you believe the difference? No wonder people have trouble with the markets. Here you have a down day on higher volume with a Bollinger band that is descending to allow for lower lows:

Here’s the SPX with the same hammer as the DOW:

And here’s the SPY ETF with the same Doji as DIA, again on higher volume. Can’t you just see the triangle there? Where’s the momentum taking you?

Okay, here’s a fun one. Let’s look at the NDX (tech stocks) daily. I highlighted the previous hammer that so presciently predicted the following decline, and now we have a “spinning top” candlestick. Note that here the NDX pinned its 50 day average and collapsed. If you look back to the candle produced on the 13th, you will see a smaller version that was a positive close. What happened after that candle? Big gap down and move lower. Is this one similar? I think it looks like a continuation candle… sure, it could reverse from that, but it just doesn’t look bullish to me – now, if it was an inverted hammer, then it would be bullish:

Internally, the NDX is doing some unique things… let’s look at a 30 minute chart. I highlighted two areas that look very similar, don’t they? I would call that a double – double top! Note that we’ve been making lower highs and today made higher lows to go along with those – that’s what makes a triangle as I’ve outlined in blue. Look at the top on the 6th… it descends down a perfect channel and bottoms on the 15th; sure looks like a wave one to me. Then we move sideways in a triangle… that sure looks like a wave 2 to me. What comes next? You can be long if you want, but not with my money! Note the mixed stochastic – in the middle and confused, just like you would expect in a triangle. Something else to note here is to look closely at the RSI on both double tops – what do you see? I see even tops but lower highs in the RSI… that’s a bearish divergence that in the first one led to selling. In fact, look at the stochastic on this chart too… here I see a repeating pattern of a tall peak followed by a lower peak which is followed by a subsequent dump in the price:

Would you be long into that? Actually, triangles are very difficult to play unless you are on them early like I was on this one. The XLF’s triangle runs out of time before the rest, its action will be the clue, but don’t be surprised if there’s a headfake or two first – this market is brilliant at doing that. Keep in mind that there’s a legitimate goal for the market to draw in fiat currency and return them to the ether from which they came – don’t let it draw in yours!

A word of caution… while I see a good case for this going lower, a break in the upward direction is not out of the question and would probably be pretty violent if it did.

Now let’s look at a 3 month chart of TLT to see how it closed. Well beneath the 50dma (green) and bending the bottom Bollinger down on higher and rising volume. The target on that blue flag is 100… note the gap in that area of the chart. That would be a huge move that if we’re really tracking that 3 peaks and a domed house pattern will probably be just as steep on the backside if not more steep! Caution here is that the $TNX ran right up to its 50dma and did not get above it – something to keep an eye on, and this chart is getting pretty oversold, but could obviously stay that way for a while:

The VIX is acting a little differently, it could be forming a little triangle too. It managed to stay above 46 today and closed above 47 after making a higher low and a lower high. Sound familiar? It’s an inside day and a hallmark of a triangle. Breaking down below 46 would be bullish for equities as a whole, while breaking above the 50dma would be bearish.

Overall, I think this action is still bearish overall. I hear a lot of analysts on TeeVee saying that we’re “basing” around 8,000 for a run higher. Maybe, but that’s not what the charts are saying to me right now. I also heard them yammering about “money that’s flowing out of bonds and into stocks!” What a bunch of maroooons, wait until they realize that higher interest rates and a country that can’t finance their debts is not generally a “buying opportunity of a lifetime!” How long has the media been pumping while those in the financial world have been robbing the world blind? A pretty long time:

Ace – How Long has this Been Going On?

And just to wash your ears out from having to listen to Ace (hey, I like *that* song), here’s someone who is just a little more “cool.”